There is no shortage of information on the economic challenges facing independent pharmacies, which raises the question, Who is doing anything to solve these problems? One answer is group purchasing organizations (GPOs).
Similar to independent pharmacies, GPOs come in a variety of sizes and types. The Federation of Pharmacy Networks (FPN), a cooperative of independent pharmacy GPOs, provides a forum for group leaders to exchange ideas that promote, advance and ensure the future of independent pharmacy. Boasting a membership of 21 GPOs, FPN provides services to the vast majority of independent and small chain pharmacies. However, there are a number of GPOs, large and small, that do not belong to FPN but serve similar functions.
Jeff Harrell, Pharm.D., owns 10 pharmacies in the southwestern corner of Washington state. Harrell is a progressive owner and is involved in providing a number of enhanced care services, and he is not afraid to try new ways to help customers and build sales.
The most important service the GPO provides is selecting which wholesaler(s) it will support. Although this may not seem complicated, a deeper look at the ways that wholesalers contract with pharmacies reveals there is more to this function than an outsider might expect.
He currently serves on the board of directors for both the National Community Pharmacists Association and the American Associated Pharmacies (AAP), one of the largest GPOs.
Harrell said the information, support and purchasing advantages he gets from his group are central to his survival. In his opinion, choosing which group a pharmacy should join involves owners balancing several core GPO benefits and then deciding which combination of benefits best fits their needs.
Wholesaler primary vendor agreements are complex. Each agreement will have different combinations of features, such as minimum purchase requirement, the percentage of purchases allowed from secondary suppliers, which items are excluded from discounts, which ancillary programs or services must be purchased, credit and payment terms and how generic purchase rebates will be determined and when they will be paid.
Because independent pharmacies come in so many forms, each GPO strives to attract members with a unique set of benefits, and many pharmacies find they can benefit from belonging to more than one GPO.
Although the backbone of most GPOs is an outstanding buy plan with a major wholesaler, one major way they strive to differentiate themselves is by providing other programs, offerings, and services. Richard Logan, PharmD, and his son Tripp own two pharmacies in southeastern Missouri (see related cover story). They partnered with a number of other pharmacies to start the Enhanced Service Pharmacy Alliance (ESPhA), which they describe as a “next-generation GPO.”
Logan says that ESPhA’s mission is to bring together a number of like-minded, quality-driven, patient-focused pharmacies that can purchase of competitively priced medications while providing support and quality assurance for the pharmacies’ non-traditional, enhanced service-based revenue opportunities.
Most groups have a process for evaluating various suppliers and negotiating for preferential pricing in exchange for being presented to the GPO’s members as an authorized or preferred vendor. PerceptiMed is a Silicon Valley-based tech company that entered the market three years ago, offering a unique pick-to-light will call bin management system called scripClip. Terry Cater, RPh, vice president of business development, said a primary reason they are growing so rapidly is the support they get from their GPO partners.
Cater added that one of the things he appreciates in working with many of the GPOs is they have senior managers who are well acquainted with technology and who can truly help their members evaluate various technology tools. He said that going to market as an endorsed vendor is a real benefit for his company.
Jon Copeland, RPh, CEO of AAP, said the industry has changed since independent pharmacy buying groups came on the scene in the late 1980s. To keep up with those changes, AAP has added several capabilities designed to help its members operate more efficiently and to implement new services designed to increase sales.
One example Copeland cited is AllyScripts, which provides a practical way for AAP members to call prescriptions for specialty drugs. Using AllyScripts, pharmacists can approach prescribers in their community and show physicians how they can help patients get these expensive and hard-to-handle medications. When a local pharmacy receives a script, it transfers the prescription to AllyScripts. The specialty pharmacy calls it according to manufacturer and insurance company requirements and then, depending on the individual parameters, sends the medication to the doctor, the patient or the local pharmacy.
According to Copeland, this service allows the pharmacy to stay in the loop regarding patient care and prevents other specialty pharmacies from forcing the patient to deal with an out-of-town pharmacy.
Jeff Carson, RPh, owner of Oakdell Pharmacy in San Antonio, Texas, is “shopping” to find a better partner. Carson said one concern he has is that many of the larger GPOs have become too closely entwined with their wholesaler partners. As an example, he pointed out how some of them require their members to subscribe to the wholesaler’s identity program, use the wholesaler’s proprietary technology and/or enroll in the wholesaler’s pharmacy services administration organization.
“One thing any group must be able to do to effectively negotiate is threaten to leave,” Carson said.
He added that some GPOs are just too big to do that, saying it is virtually impossible to get 2,000 or 3,000 pharmacies to make the change. Without that threat, Carson is not certain he is truly able to get from a GPO the best possible combination of benefits he is looking for.
Logan said that in his experience, the amount of discounts or savings that GPOs can get from their wholesaler partners has hit rock bottom. So, like Copeland, Logan said the focus for GPOs moving forward will turn to helping pharmacies operate more efficiently and expand into areas that provide additional sources of revenue.
Kevin DeMass, RPh, owner of the Apothecary Shoppe in Salt Lake City, Utah, also subscribes to this idea. DeMass is chairman of the board for the Western States Pharmacy Coalition (WSPC), a smaller group of approximately 300 members. DeMass said that although it may be counterintuitive, he believes his GPO proves that bigger is not always better. One very specific feature he mentions is that WSPC employs several of its pharmacy owner members to serve as regional advisers to other members in their area.
“Members get regular and ongoing support from other owners who are actually using and benefiting from the services we provide,” DeMass said.
One way that some of the largest groups provide their members with the best prices on pharmaceuticals is by operating their own drug distribution facilities. AAP, PBA Health and the Independent Pharmacy Cooperative each own large and very sophisticated warehouses. According to Copeland, having a warehouse and a buying staff to support it means these GPOs can monitor their wholesale partner. They are also able to take advantage of unique opportunities in the market that allow them to supply products from their own warehouse, providing their members with even greater savings.
Dennis Vermillion, RPh, owner of Town Center Pharmacy in Visalia, California, is an owner who recently switched GPOs. Vermillion said that the critical factors in his decision on a group included better prices, new and more effective marketing and management programs and opportunities to get to know, share and work with other owners in the group.
“I wanted to join a group where it didn’t feel like the managers were in it for themselves but where I felt they were in it for us,” Vermillion said.
Bruce Kneeland is a community pharmacy consultant who specializes in helping pharmacists and pharmacy owners profitably provide enhanced patient care. He can be reached at BFKneeland@gmail.com.